Are certified pre-owned cars worth the extra money?
By Claes Bell • Bankrate.com

Here's a riddle for prospective car buyers: What has the lower price and depreciation of a used car and the reliability and warranty of a new car? The answer: a certified pre-owned car.

At least that's what the auto industry would like American car customers to think. But what does "certified pre-owned" really mean? And what are the advantages and disadvantages of buying one?

"Certified pre-owned," or CPO, is a term coined by the automotive industry to describe late-model, low-mileage used cars that have passed some sort of inspection and are backed by a factory warranty or service contract. Certified pre-owned cars are generally in better shape than the average used car and have a history of regular maintenance and accident-free operation that can be verified independently through a vehicle-tracking service such as Carfax.

Where certified pre-owned cars come from
Most of the autos with the certified pre-owned label are cars that were leased new instead of sold, and thus have been cared for by customers trying to avoid extra charges for wear and tear at the conclusion of their leases. Certified pre-owned programs started as a way for automakers to sell low-mileage off-lease cars during the leasing boom of the 1990s. Since then, sales of certified pre-owned autos have sky-rocketed, thanks to the perceived combination of new-car dependability and used-car price.

But the most important definition of certified pre-owned for consumers is the one written by the manufacturers themselves. Most certified pre-owned programs offer some combination of a warranty, an inspection and the option to return the car if it doesn't live up to expectations. However, the specifics of what consumers get for the extra cash they spend on a certified pre-owned car varies a great deal. Lexus, an early pioneer of CPO programs, adds a three-year/100,000-total-vehicle-mile limited warranty to its CPO cars. Chrysler, while offering an inspection and a return policy, offers only a three-month/3,000 mile limited warranty and an 80,000-total-vehicle-mile powertrain-only warranty on its certified pre-owned cars.

"Extension of the factory warranty is one of the key elements of a CPO program" says Paul Taylor, chief economist at the National Automobile Dealers Association. "Customers should make sure they get an extension of the factory warranty, which entitles them to the same service that new-car owners enjoy."

So why do manufacturers and dealers go to the trouble of testing and warranting CPO cars? The answer is simple: money.

"Buying certified pre-owned can tack on anywhere from $500 to a couple of thousand dollars to the price of a used car," says Cliff Weathers, deputy automotive editor at Consumer Reports.

Traditionally, manufacturers made little to no money off the lucrative trade in used cars. This changed with the advent of CPOs. Manufacturers, along with dealers, now get a cut from the sale of each used car with the certified pre-owned tag, and this extra profit comes out of the pockets of CPO buyers.

Are certified pre-owned cars worth it?
Is the certified pre-owned label worth this extra money? It depends on what you're looking for. If your first priority is price, avoid certified pre-owned vehicles altogether.

"CPO cars are not for bargain shoppers," says Phil Reed, consumer advice editor for Edmunds.com and author of "Edmunds.com's Strategies for Smart Car Buyers."